Noah Brier e a matemática financeira das agências

But I don’t really want to talk about finance, rather I was left thinking about the incentive structure in my own industry: Marketing. Like any industry you have two sides: Buyers (brands that are looking to advertise) and sellers (agencies that are looking to provide their services to brands for a fee). The buyer, theoretically, is looking for something simple: To sell more of whatever it is they sell. This, as with most explanations, is over-simplified, as there could be any number of potential motives for choosing to advertise, but at the end of the day almost all of them eventually get back to selling more stuff.

The sellers price, in a perfect market, would reflect the potential quality of the product (piece of communication) they can deliver against the buyers objective. This leads to two major issues. First, there is no real way for agencies (or the marketers that pay them) to understand the effectiveness of their own campaigns, which leads directly to the second problem, that opacity in effectiveness creates a pretty serious market inefficiency: One side having a whole lot more information than the other (which leads to exploitation).

Eventually that lop-sided information flow leads to an over-emphasis on brand rather than actual ability to deliver results, which gets me to the whole point of this little diatribe: Agencies are more incentivized to build their own brands rather than that of their customers. Sure there are safeguards against this, mainly long-term agreements that agencies covet. But the problem is that even those “long-term” relationships tend to last at most two-or-three years. While there are certainly a few long-term relationships around the business, the vast majority of work being done these days is done with the express understanding the whoever’s doing it is unlikely to be doing it three years from now.

What’s funny is that this is the exact inefficiency that advertisers so covet, making it all the more surprising they wouldn’t recognize the same issue when it’s happening to them. By that I mean, in a category (say toothpaste) where the vast majority of the public has no understanding of how effective one product is compared to another they come to rely on brands (this is pretty much the premise of marketing). Ultimately people end up making their decisions based on a bunch of factors that speak to just about everything but whether it will do the job it says it will do.